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Monday, March 20, 2006

Condo Conversions Taking Over Seattle

Apartment to Condo conversions made the front page of today's Seattle P-I in a story titled City's renters lose out as condo switch soars.

Thousands of Seattle renters have been displaced as developers turn to apartment buildings to meet strong appetite for in-city homes. Apartment-to-condominium conversions in Seattle have skyrocketed, from 345 in 2004 to 1,551 last year.

Yet, compared with some other areas with hot housing markets, Washington state law gives tenants far less time to vacate their apartments. Relocation assistance for low-income residents displaced by condo conversions is set at $500.
For the first time last year, the region also lost more apartments than were built, according to Dupre + Scott Apartment Advisors. Though that trend should change as the market adjusts, it's stoking concerns about Seattle's supply of moderately priced housing.
Condo conversions can offer relatively affordable options for those looking to buy, with most units in her building expected to sell for between $240,000 and $370,000. That's cheaper than many of the neighborhood's single-family homes or new downtown condos.

"There's a true, true problem with affordable housing in this city," said Robert Hardy, a developer who's undertaken six condo conversions, including the Arboretum View Apartments where Orso lives. "I'm one of the only guys around that's creating any supply of affordable new condos, and that's pretty scary."

But the wave is also displacing thousands of renters who can't afford those prices, with some longtime tenants facing distressingly abrupt evictions.
What's scary to me is that $240,000 is considered an "affordable" condo. Attention: Common Sense has left the building.

(Jennifer Langston, Seattle P-I, 03.20.2006)


Anonymous said...

"affordable" defined by paying a mere 80% more for the condo payments than you would to rent the same unit.

I've priced recent conversions against what the building rents were before, and allowing for a 25% rent increase due to the remodeling, the condos still cost far more than their rental market value.

Anonymous said...

One item they fail to mention is that while few people buy their own apartment after renting it, around 40% or condo-converted units re-enter the market as rentals - to someone else.

Anonymous said...

Oh yeah, I'd venture a guess that the 40% number is a little low. There is a lot of inventory out here that is not necessarily counted in statistics -- like MILs and condos that are rented out -- but there is definitely more rental supply than demand in this market.

What's really interesting is that when you consider all of the people that rent out rooms or MILs as well as condos that re-enter the market as rentals, the rental supply does not change very much. And landlords who charge too much quickly find out that the market will only bear so much and those units stay empty until the prices go down. I've seen way too many "for rent" signs for this rental market to be anything other than soft.

waiting said...

Check out our "Tales of a Seattle RE Investor" blog.

He's thinking of doing pre-construction condo investing so when the building appreciates he can flip for profit. "The longer the building takes to complete, the higher the appreciation" LOL!

This guy really needs to talk to people around the country who have been losing their shirts in exactly this kind of scenario.

Anonymous said...

Speaking of condo conversions, how about MIL conversions? Here's a 500 sq ft, 100 yr old "house," right next to a railyard, for a mere $300,000!

meshugy said...

Has anyone seen this?!!

"Sales of Existing Homes Surged in February"


waiting said...

Advice re. buying property in Seattle from John Vogel of the School of Business at Dartmouth College:

"Last year in Seattle, if you waited (to buy a home), you lost out. That has changed. My advice now is to wait and observe the market."

Other cities that he cautioned about buying into: Miami and Wasington D C.

isa said...

Anonymous said...
One item they fail to mention is that while few people buy their own apartment after renting it, around 40% or condo-converted units re-enter the market as rentals - to someone else.

I am seeing this a lot in Capital Hill ---but what I don't understand is how the rent can cover the costs.

For example, I saw a conversion of a building on 17th Ave. with apartments with two bedrooms selling for $500,000 (!)

Then I saw one of these for rent later in the year for 2200./mo.

Surely that can't cover the mortgage payment (even assuming 20% down) and HOA fees.

Or would it be someone with an IO/ARM loan hoping that they will sell at a profit in a year or so?

Is that crazy? How do people absorb the loss in the meanwhile?

isa said...

p.s...not that I think they will be able to sell at a profit (at least I hope not...half a million for a two bedroom apartment in Capital Hill is absurd enough as it is.....)

waiting said...

Yeah Meshugy. Today has been a very interesting day for RE news.

Two seemingly contradictory (as relates to RE market optimism) reports came out.

One was that the median price is going down all over the US. The other is that existing sales are much higher than expected.

The thing that's interesting is that whenever you hear about the existing sales data, whether on TV or in print, they always attach a side note.

The side note is: since sales are higher than expected, the Fed now has the freedom to keep raising interest rates.

The Fed is walking a tightrope right now. On the one hand they MUST raise interest rates to prop up the dollar for all the foreign holders of our huge debt.

On the other hand they CAN'T raise interest rates because they know it will kill the housing market. And it's the umnbelievably hot housing market that's been propping up the US economy for the past several years.

They need to go slow in their killing of the RE market. They can't start an outright panic overnight.

I predict that every time the Fed needs to raise the rates over the next few months, you'll see a report on how unexpectedly "strong" the housing market is.

Oh, the above interview with John Vogel was on CNBC today on the show called "Street Signs".

Anonymous said...


There is no way most of these people can cover their payments by renting their properties out.

The old RE model was: rents cover mortgage payment, at the very least, and try to cover at least part of the insurance and property taxes.

Makes sense if you think bleeding money every month is a bad idea.

the new model is: Don't worry about a thing, appreciation will take care of all of your current debt.

Debt= Wealth (eventually!!)

Now that the market is stalling and about to go over the cliff, the "old model" will come back in vogue.

PepeDaniels said...

I moved here from South Florida as it was ridiculously overpriced there to own or rent w/ wages. It seems that the market here is something like 12-18 months behind the curve? Another thing that seems to slow the inevitable here is wages are a bit higher on average.
Still, I here the same nonsense here as I did in Florida (which is currently starting to tank).
"It's different here", "they stopped making land! "Everyone will come from ______________(fill in the blank), so it will just keep on going up".
These increases (and starting points, for that matter) are way out of people's real wages. Behind more and more people's new car, new sweater, and last beer tab is often a mountain of debt and credit card problems.

Anonymous said...

Yep. It IS the same nonsense everywhere.

"RE always goes up. They're not making anymore land. The babyboomers will save our market. The local economy is strong.etc.etc.etc."

And in every single place it's all proven wrong.

Could it possibly be that what we have witnessed in RE the past several years is just mania pure and simple and that houses are just way over-priced?